I wonder if your company has added a Roth 401k feature to your existing plan. Many companies are doing that – it was one of the decisions to be made when required amendments were made to qualified plans. If the after tax dollars are going into a Roth 401k – you will be able to contribute more than the $5,000 you have been putting into a traditional nondeductible IRA. However, as you indicated, you cannot exceed the $49,000 per employee. If it is a Roth 401k – the $16,500 401k limitation is split betwen the deferred 401k (pre-tax) and the Roth 401k (after tax) – the balance of the $49,000 would be employer contributions. You do not show the after tax contributions to a 401k on your return. When you retire or leave the company, the Roth 401k can be rolled over to an existing or new Roth IRA.

The pretax portion of your 401k and earnings can be rolled to an existing or a new IRA when you leave the company. If you are worried about bankruptcy protection, you would roll it to a separate rollover IRA but that is the only reason I’m aware of that you’d keep the funds separate. IRA distributions are treated as if they came from one big pot – basis is recovered using all basis as a percentage of all IRA balances.

If the company does not have a Roth 401k but is allowing after tax contributions to the plan, you’d normally report the basis if you roll those contributions to an IRA when you leave the company. If you’re removing all of your funds at a separation from service, the after tax money does not need to be rolled over. If you do roll it over, you add the basis to Form 8606 when your report your next nondeductible contribution or take a distribution.

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